­Experienced management and support of marquee investors

SMPL, a Mumbai based NBFC-MFI is promoted by Mr. Arunkumar Padmanabhan (Co- Founder & CEO) and Mr. Narayanan Subramanian (Co-Founder, CFO and CIO). Mr. Arun is responsible for rollout of the branches, products and services and to scale up the business volumes in line with Svasti’s business plans. Mr. Arun also handles the Human Resources function. Mr. Narayanan is responsible for operations process design and supporting it with technology initiatives. He also handles the Finance, Accounts, Operations Audit and Training Design. The promoters have demonstrated their resource raising ability by raising funds from reputed and diverse set of investors at regular intervals which includes Andaman Group, Poonawala Group, Nordic Microfinance Initiative amongst others.
The company’s board comprises of 5 directors of which Mr. M.N Venkatesan and Mr. Ramanathan Annamalai are independent directors who have extensive experience in banking and microfinance lending. Mrs. Smriti Chandra of Nordic Microfinance Initiative Fund is nominee directors on Board.
Acuité believes that the company’s growth prospects will be supported by the promoter’s experience in the industry along with their demonstrated track record of resource raising ability. Further, expectations of capital raising in the near to medium term shall support the growth momentum going forward.
 
Adequate financial risk profile with a diversified funding mix

The capitalisation profile is supported by regular capital infusions by the promoters. The company has raised around Rs. 122 crore since inception by the support from its promoters. Further, in March 2023 Rs. 16 Cr was infused by the existing shareholders and the company has plans on bringing in more capital during the year. The company’s capital structure is supported by a Networth of Rs. 168.52 Cr. , total debt of Rs. 716.44 Cr and resultant gearing of 4.25 times as on March 31, 2023. The company plans to raise Rs. 100 crore during the year FY2024, this infusion will be done by new investors. However, the dilution of the shares will happen equally. The company raised fresh borrowings of Rs. 540.51 Cr in FY2023 from various PSUs, Private Banks and NBFCs. The capitalization levels of SMPL are adequate, with CAR being at 23.13  percent as on June 30, 2023. CAR majorly comprises of Tier I capital.
The company saw an increase in its Net Interest Income to Rs. 75.46 Cr. for FY 2023 from Rs. 38.09 Cr. for FY 2022. Resultantly, its profitability improved in FY2023, PAT stood at Rs. 17.58 Cr. during the year FY2023 as against Rs. 2.39 Cr. in FY2022. The Return on Average Assets (RoAA) stood at 1.93 percent as on March 31, 2023 as against 0.41 percent as on March 31, 2022. Further, during Q1FY24 the company reported PAT of Rs. 9.74 Cr.
 
Acuité believes, going forward, that the ability of the company to mobilise low-cost funding and its ability to deploy the funds profitably will be a key monitorable.

­Leveraged capital structure
SMPL is engaged in microfinance lending providing short term loans up to 12-24 months. The company extends micro-credit through the Joint Liability Group (JLG) model. The company’s networth stood at Rs. 168.52 Cr. and total debt stood at Rs. 716.44 Cr. as on March 31, 2023. MML’s gearing stood at 4.25 times as on March 31, 2023 (3.63 times as on March 31, 2022). The debt comprises term loans from Banks, NBFCs and FIs, NCD and others. SMPL is in talks to raise capital of ~Rs 100 Cr, this infusion will be done by new investors. To support the growth momentum SMPL would require further debt and considering the already leveraged capital structure the promoters may be required to infuse additional equity to support any future business growth.
Acuité believes that company’s ability to manage its gearing will be a key monitorable.

Risk inherent to microfinance segment

The activities of microfinance companies, like SMPL are exposed to geographical concentration risks. The top 3 states comprise ~82 percent of the overall portfolio. SMPL has concentration in Maharashtra (~49 percent of the overall portfolio), Uttar Pradesh (~19 percent) and Madhya Pradesh (~15 percent) as on June 30, 2023. It has 140 branches located over 92 districts as on June 30, 2023. This exposes the company to high geographical concentration risk. Thus, the company's performance is expected to remain exposed to competitive landscape in these regions and occurrence of events such as natural calamities, which may adversely impact the credit profile of the borrowers. Besides geography, the company will be exposed to competition and any changes in the regulatory framework.
Going forward, Acuité believes company’s plans grow its presence and further diversify its operations geographically will be important from a credit perspective.